CBO has developed preliminary projections of key economic variables through the end of calendar year 2021, based on information about the economy that was available through yesterday and including the effects of an economic boost from legislation recently enacted in response to the pandemic. In addition, CBO has developed a preliminary assessment of federal budget deficits and debt for fiscal years 2020 and 2021. CBO will provide a comprehensive analysis of that legislation and updated baseline budget projections later this year.
In the second quarter of 2020, the economy will experience a sharp contraction, and CBO’s current economic projections include the following:
- Inflation-adjusted gross domestic product (real GDP) is expected to decline by about 12 percent during the second quarter, equivalent to a decline at an annual rate of 40 percent for that quarter.
- The unemployment rate is expected to average close to 14 percent during the second quarter.Interest rates on 3-month Treasury bills and 10-year Treasury notes are expected to average 0.1 percent and 0.6 percent, respectively, during that quarter.
For fiscal year 2020, CBO’s early look at the fiscal outlook shows the following:
- The federal budget deficit is projected to be $3.7 trillion.
- Federal debt held by the public is projected to be 101 percent of GDP by the end of the fiscal year.
The Labor Market. The unemployment rate is projected to average 15 percent during the second and third quarters of 2020, up from less than 4 percent in the first quarter. The unemployment rate is the number of jobless people who are available for and seeking work, expressed as a percentage of the labor force. The increase in that rate in the second and third quarters reflects the net effect of a projected loss of nearly 27 million in the number of people employed and the exit of roughly 8 million people from the labor force.
Reflecting that reduction in the labor force, the labor force participation rate—that is, the percentage of people in the civilian noninstitutionalized population who are at least 16 years old and who are either working or seeking work—is projected to decline from 63.2 percent in the first quarter of this year to 59.8 percent in the third quarter. As a result, the employment-to-population ratio is projected to decline by about 10 percentage points over that same period.
The labor market is expected to improve after the third quarter, with a rebound in hiring and a significant reduction in furloughs as the degree of social distancing diminishes—leading to an increase in business activity and an increase in the demand for workers. In particular, the unemployment rate is projected to decline to 9.5 percent by the end of 2021. Under that projection, the unemployment rate at the end of 2021 would be about 6 percentage points higher than the rate in CBO’s economic projection produced in January 2020, and the labor force would have about 6 million fewer people.